Patent Defenses and Remedies

1
Patent Defenses and Remedies

• Intro to IP Prof Merges
• 2.3.10

2
Defenses

• Inequitable Conduct
• Patent Exhaustion

3

• Remedies in patent infringement cases

4
Defenses
Invalidity
Clear and convincing evidence standard
282 Presumption of Validity
5
Kingsdown Med. v. Hollister

• Note the remedy or effect of a finding of
  inequitable conduct patent is UNENFORCEABLE

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Rationale

• Examiners are busy patentee benefits greatly
  from examiner oversight
• Place strong penalty on patent applicant for
  nondisclosure or misrepresentation in patent
  prosecution

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A Potent Defense

• Made more attractive when other defenses fail,
  when patent damages are very high

8
Prosecution history, p. 326

• All these complex interchanges are grist for the
  mill under inequitable conduct
• All amendments, communications with PTO can and
  will be scrutinized

9
What was the mistake here?

• The applicant said, incorrectly, that claim 43
  corresponded to allowed claim 50 in another (now
  issued) application
• Claim 43 was in fact broader than the allowed
  claim 50

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Standard for Inequitable Conduct

• Inequitable conduct resides in failure to
  disclose material information, or submission of
  false material information, with an intent to
  deceive . . . .
• -- p. 327

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Inequitable Conduct
Inequitable conduct
Duty of Candor
12
Materiality and Intent

• Materiality relevance, importance (established
  here)
• Intent not established here

13
Intent
Legal Standard?
unknowing
deliberate
lack of due care
reckless
accidental
14
Equitable Defenses
materiality
Inequitable conduct
intent
Duty of Candor
15
Patent Exhaustion

• To exhaust to run out of, use up
• What is used up? The power of a patent
• When is it used up? When an item covered by the
  patent is sold on the market

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18
LG Electronics (Patent Owner)
Intel (Licensee)
Computer Cos.
19
LG Electronics (Patentee)
Master License (required non-coverage notice to
Intel Customers)
Intel (Licensee)
Specific product license (no customer
restrictions)
20
Intel (Licensee)
LGs right to Sue?
Computer Cos.
21
LG Electronics (Patentee)
Intel
End Users
22
Intel (Licensee)

License?
End Users
23
LG Sued End Users Bizcom, Quanta, etc.

• End Users defended by claiming that they were
  protected against suit by virtue of the LG-Intel
  license agreement, and Intels sale of chips to
  them

24
District Court

• LG argued that end users were not protected by
  exhaustion, since the chips sold by Intel did not
  completely embody any claims in the asserted
  patents
• District Court disagreed held, sales of chips by
  Intel exhausted LGs rights vis-à-vis end users

25
Federal Circuit

• Partial reversal
• No exhaustion LG did not authorize Intel to
  authorize end-users to combine Intel products
  with non-Intel products

26
Quanta Computer, Inc. v. LG Electronics, Inc.

• 128 S.Ct. 2109 (2008)
• Held licensee's sale of component computer parts
  that substantially embodied method patents held
  by patentee was authorized by patent holder,
  and had effect of exhausting patent holder's
  patents.

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Supreme Court Holdings

• Method claims are subject to exhaustion
• Embodiments substantially containing claimed
  technology exhaust a patent
• Sales in this case were authorized sales under
  the licensing arrangement in this case so
  patents were exhausted

28
Supreme Court Holdings

• Method claims are subject to exhaustion
• Embodiments substantially containing claimed
  technology exhaust a patent
• Sales in this case were authorized sales under
  the licensing arrangement in this case so
  patents were exhausted

29
Third holding important for future cases

• We can learn from the LG Intel End User
  arrangement

30
Basic exhaustion principles

• Exhaustion is triggered only by a sale
  authorized by the patent holder.
• gt 128 S.Ct. 2109, 2121

31
Two elements here

• 1 SALE only
• gt Licensing is outside this holding
• gt Creative licensing arrangements are still
  permissible

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• 2 Authorized by the patent holder
• gt Principles of implied licensing come into play

33
LG Electronics (Patentee)
Master License (required non-coeverage notice to
Intel Customers)
Intel (Licensee)
Specific product license (no customer
restrictions)
34
No restriction on customers use of patented
technology

• The provision requiring notice to Quanta
  appeared only in the Master Agreement, and LGE
  does not suggest that a breach of that agreement
  would constitute a breach of the License
  Agreement. Hence, Intel's authority to sell its
  products embodying the LGE Patents was not
  conditioned on the notice or on Quanta's decision
  to abide by LGE's directions in that notice. --
  128 S.Ct. 2109, 2121-2122

35
Quanta strongly suggests that effective
restrictions/not-ice in license agreement might
bind downstream users
Patentee
Licensee
End users
36
LG Electronics (Patentee)
Specific product license WITH requirement to
restrict customers to give notice of no license
Intel (Licensee)
37
Remedies in licensing agreement

• We note that the authorized nature of the sale
  to Quanta does not necessarily limit LGE's other
  contract rights. LGE's complaint does not include
  a breach-of-contract claim, and we express no
  opinion on whether contract damages might be
  available even though exhaustion operates to
  eliminate patent damages. 128 S.Ct. at 2122

38
Important issues post-Quanta

• Contractual remedies for Licensees breach of
  license, including unauthorized infringement by
  Licensees customers

Patentee
Licensee
End users
39
Remedies
Prospective Effect
Final injunction issues
Issuance
Preliminary injunction hearing
Complaint filed in District Court
Damages assessed for this period if marking (or
actual notice)
40
35 USC 283. Injunctive relief.

• The several courts having jurisdiction of cases
  under this title may grant injunctions in
  accordance with the principles of equity to
  prevent the violation of any right secured by
  patent, on such terms as the court deems
  reasonable.

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• MercExchange, L.L.C., holds a number of patents,
  including a business method patent for an
  electronic market designed to facilitate the sale
  of goods between private individuals by
  establishing a central authority to promote trust
  among participants. See U.S. Patent No.
  5,845,265.

43
United States Patent 5,845,265 Woolston December
1, 1998 Consignment nodes

• Abstract
• A method and apparatus for creating a
  computerized market for used and collectible
  goods by use of a plurality of low cost posting
  terminals and a market maker computer in a legal
  framework that establishes a bailee relationship
  and consignment contract with a purchaser of a
  good . . . in an electronic market for used goods
  while assuring the safe and trusted physical
  possession of a good with a vetted bailee.
• Inventors Woolston Thomas G. (Arlington, VA)
  AssigneeMercExchange, L.L.C. (Alexandria, VA)
  Filed November 7, 1995

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• Substantial evidence was adduced at trial
  showing that the plaintiff does not practice its
  inventions and exists merely to license its
  patented technology to others. Indeed, the
  plaintiff has made numerous comments to the media
  before, during, and after this trial indicating
  that it did not seek to enjoin eBay but rather
  sought appropriate damages for the infringement.
• -- 275 F.Supp.2d 695, at 712

45
Supreme Court

• Reversed Federal Circuit
• Rejected automatic rule
• Reimposed historical standard

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The 4 Part Test Plaintiff must show

• (1) That it has suffered an irreparable injury
  (2) that remedies available at law, such as
  monetary damages, are inadequate to compensate
  for that injury (3) that, considering the
  balance of hardships between the plaintiff and
  defendant, a remedy in equity is warranted and
  (4) that the public interest would not be
  disserved by a permanent injunction. book, p.
  935

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What was wrong with the Federal Circuit test?

• Too mechanical The Court of Appeals departed
  in the opposite direction from the four-factor
  test. The court articulated a general rule,
  unique to patent disputes Just as the District
  Court erred in its categorical denial of
  injunctive relief, the Court of Appeals erred in
  its categorical grant of such relief.

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• Some patent holders, such as university
  researchers or self-made inventors, might
  reasonably prefer to license their patents,
  rather than undertake efforts to secure the
  financing necessary to bring their works to
  market themselves. Such patent holders may be
  able to satisfy the traditional four-factor test,
  and we see no basis for categorically denying
  them the opportunity to do so.

49

• We hold only that the decision whether to grant
  or deny injunctive relief rests within the
  equitable discretion of the district courts, and
  that such discretion must be exercised consistent
  with traditional principles of equity, in patent
  disputes no less than in other cases governed by
  such standards.

50
Kennedy, Stevens, Souter Breyer

• The lesson of the historical practice, therefore,
  is most helpful and instructive when the
  circumstances of a case bear substantial
  parallels to litigation the courts have
  confronted before. -- 938

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• An industry has developed in which firms use
  patents not as a basis for producing and selling
  goods but, instead, primarily for obtaining
  licensing fees. For these firms, an injunction,
  and the potentially serious sanctions arising
  from its violation, can be employed as a
  bargaining tool to charge exorbitant fees to
  companies that seek to buy licenses to practice
  the patent. When the patented invention is but a
  small component of the product the companies seek
  to produce and the threat of an injunction is
  employed simply for undue leverage in
  negotiations, legal damages may well be
  sufficient to compensate for the infringement and
  an injunction may not serve the public interest.

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Damages

• Statute
• Caselaw (principles)

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35 U.S.C. 284

• The court shall award the patentee damages
  adequate to compensate for the infringement but
  in no event less than a reasonable royalty for
  the use made of the invention by the infringer.

54
35 U.S.C. 285

• The court in exceptional cases may award
  reasonable attorney fees to the prevailing party.

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Damages

• Two measures
• Actual damages Lost Profits
• Reasonable royalty
• Actual damages the problem of proof

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Compensation principle

• But for the defendants infringing sales, what
  would the patentees profits have been?
• NOT a disgorgement remedy patentees loss, NOT
  infringers gain

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Willful infringement

• Section 284 The court may increase damages up
  to three times

58

• 1. Should a party's assertion of the advice of
  counsel defense to willful infringement extend
  waiver of the attorney-client privilege to
  communications with that party's trial counsel?
  See In re EchoStar Commc'ns Corp., 448 F.3d 1294
  (Fed.Cir.2006).
• 2. What is the effect of any such waiver on
  work-product immunity?
• 3. Given the impact of the statutory duty of care
  standard announced in Underwater Devices, Inc. v.
  Morrison-Knudsen Co., 717 F.2d 1380
  (Fed.Cir.1983), on the issue of waiver of
  attorney-client privilege, should this court
  reconsider the decision in Underwater Devices and
  the duty of care standard itself?

59
35 USC 284

• When the damages are not found by a jury, the
  court shall assess them. In either event the
  court may increase the damages up to three times
  the amount found or assessed. Increased damages
  under this paragraph shall not apply to
  provisional rights under section 154(d) of this
  title.
• The court may receive expert testimony as an aid
  to the determination of damages or of what
  royalty would be reasonable under the
  circumstances.

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Traditional Federal Circuit rule

• Where ... a potential infringer has actual
  notice of another's patent rights, he has an
  affirmative duty to exercise due care to
  determine whether or not he is infringing. Such
  an affirmative duty includes, inter alia, the
  duty to seek and obtain competent legal advice
  from counsel before the initiation of any
  possible infringing activity. Underwater
  Devices

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• The duty of due care standard has led to punitive
  damages based on nothing more than a negligent
  failure to proceed with due care. See, e.g.,
  Stryker Corp. v. Davol, Inc., 234 F.3d 1252, 1259
  (Fed. Cir. 2000) (declining to overturn jury
  finding of willful infringement when evidence
  indicated that reliance on advice of counsel was
  unreasonable)

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• But the duty of due care standard shifts to the
  defendant the burden of demonstrating that it has
  acted with sufficient care to forestall a finding
  of willful infringement. See Knorr-Bremse
  Systeme Fuer Nutzfahrzeuge GmBH v. Dana Corp.,
  383 F.3d 1337, 1349 (Fed. Cir. 2004) (en banc)
  (Dyk, J.) (this effectively shifts the burden of
  proof on the issue of willfulness from the
  patentee to the infringer).

64
Seagate opinion

• Over the years, we had held that an accused
  infringer's failure to produce advice from
  counsel would warrant the conclusion that it
  either obtained no advice of counsel or did so
  and was advised that its activities would be an
  infringement of valid U.S. Patents.
  Knorr-Bremse, 383 F.3d at 1343 -- at 15

65

• Just recently, the Supreme Court addressed the
  meaning of willfulness as a statutory condition
  of civil liability for punitive damages. Safeco
  Ins. Co. of Am. v. Burr, --- U.S. ----, 127 S.Ct.
  2201, 167 L.Ed.2d 1045 (2007)
• The Court concluded that the standard civil
  usage of willful includes reckless behavior.
  Id. at 2209

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• In contrast, the duty of care announced in
  Underwater Devices sets a lower threshold for
  willful infringement that is more akin to
  negligence. This standard fails to comport with
  the general understanding of willfulness in the
  civil context, Richland Shoe Co., 486 U.S. at
  133, 108 S.Ct. 1677 (The word willful ... is
  generally understood to refer to conduct that is
  not merely negligent.), and it allows for
  punitive damages in a manner inconsistent with
  Supreme Court precedent

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• Accordingly, we overrule the standard set out in
  Underwater Devices and hold that proof of willful
  infringement permitting enhanced damages requires
  at least a showing of objective recklessness.
  Because we abandon the affirmative duty of due
  care, we also reemphasize that there is no
  affirmative obligation to obtain opinion of
  counsel.

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• When opinions are sought, NO waiver of
  attorney-client privilege with respect to trial
  counsel